The House of Representatives approved on third and final reading a bill that seeks to encourage investments by amending the National Internal Revenue Code and gradually reducing the corporate income tax and rationalizing fiscal incentives.
House Bill No. 4157, or the Corporate Income Tax and Incentives Rationalization Act (CITIRA), received 170 affirmative votes, 8 negative votes, and 6 abstentions on September 13, 2019.
It was the 4th bill approved by the House in the 18th Congress and is the Package 2 of the Comprehensive Tax Reform Program of the Duterte government.
The bill seeks to reduce corporate income tax (CIT), currently at 30%, by 2 percentage points every two years starting 2021 until it reaches 20% by 2029.
The rate will thus be reduced to 28% on January 1, 2021, 26% on January 1, 2023, 24% on January 1, 2025, 22% on January 1, 2027, and 20% on January 1, 2029.
The bill also removes the option for corporations, including resident foreign corporations, to avail of the 15% gross income tax.
Both resident and non-resident foreign corporations will be able to avail of the new schedule of reduced CIT rates.
Regional operating headquarters and offshore banking units, which currently enjoy preferential CIT rates of 10%, will also have to pay the new CIT rates.
HB 4157 also exempts the Home Development Mutual Fund (HDMF or Pag-IBIG) from paying income tax, given that the Social Security System, Philippine Health Insurance Corporation and Government Service Insurance System are already exempted.
Under the bill, fiscal incentives are granted only to exporters and industries listed in the Strategic Investments Priority Plan (SIPP) although the President has the power to grant incentives to projects that will bring in at least US$200 million and have sustainable development plans.
Income tax incentives are granted for a maximum of 5 years including a 3-year income tax holiday, removing the perpetual 5% on gross income earned and limiting income tax holiday.
Qualified projects will pay a CIT of 18% - 15% to the national government and 3% to the local government unit - within the period. The rate is reduced by 1 percentage point every year starting 2021 until it reaches 13% in 2029.
Two more years inclusive of a one-year income tax holiday, or a total of 7 years of tax incentives, are added for projects in lagging areas, in areas recovering from armed conflict or major disasters, agribusiness outside major urban areas, relocated from Metro Manila and nearby urban areas.
The investors may re-apply after the 5-year or 7-year tax incentives.
HB 4157 further enhances the accountability of taxpayers through a “more efficient tax administration” that includes vesting power on the Bureau of Internal Revenue (BIR) commissioner to issue a subpoena duces tecum to compel submission of documents. Failure to heed the subpoena would be a crime.
Read the full report of the House committee on ways and means here.
Albay 2nd District Representative Joey Salceda, chairman of the House committee on ways and means, said in a statement that reducing the CIT is expected to encourage domestic companies to produce in the Philippines rather than abroad.
The measure will also provide additional revenues to responsible corporate partners every year. Assuming they reinvest 50% of the tax savings arising from the CITIRA, he said this will produce 1.1 million jobs between 2020 and 2029. (Ventures Cebu)